Pharma likely to see double-digit revenue growth in first quarter

Pharma sector earnings growth in first quarter of the current fiscal year (Q1FY17) is expected to be good, analysts say. 

Surya Patra and Mehul Sheth of Phillip Capital said, in Q1FY17, pharma industry to see top-line and bottom-line growth by 16% and 24% respectively, primarily due to robust performance from Sun Pharma, led by  its product gGleevec.

A sequential currency improvement in US dollars, Brazilian real and Russian ruble against Indian rupee is expected to aid strong revenue growth in US. This will also lead to recovery in ROW(rest of the world) business as these are adversely affected by currency fluctuations, Phillip Capital said in a report.

If Sun Pharma excluded, Phillip Capital expects the growth sales/profit growth to stand at 13%/15%. With positive currency volatility EBITDA (earnings before interest tax depreciation and amortisation) margin is expected to rise by 165 bps (basis point) to 27%, which will support strong earnings.

According to Phillip Capital, following are the companies which will take pharma sector to its target.

Aurobindo Pharma –  The company’s earnings could see 33% growth mainly tapped by strongest ANDA approval flow in Q1. Margins are also expected to expand by 220 bps led by US sales progress.

Sun Pharma – Its drug gGleevec is going to rule over the quarter in the sector. Incremental sale from gGleevec under exclusivity, likely to drive 75% earnings growth.

Further, domestic formulation will also add to the strength as it is grow by 13% yoy. Margin outlook also remains positive for Sun Pharma.

Lupin – The company’s Q1 is expected to be associated with its gGlumetza exclusivity and integration of Gavis to push growth. About 13% yoy growth is expected by domestic sales. EBITDA margins too are foreseen to be driven by gGlumetza exclusivity.

However, this quarter can result in higher amortisation of intangible assets and higher finance cost led by leveraged Gavis  acquisition . Mean while, a positive movement in USD and yen will help Lupin achieve 57% earnings growth.

Glenmark Pharma – The company could see 29% growth in Q1, led by recent launches in the US, favourable currency movements. Relatively lower tax incidence and lower finance cost to also strengthen Q1 results of the company.

Cadila Health Care – Recovery in domestic formulations and relatively lower tax incidence will lead to 21% earnings growth.

Dr Reddy’s Lab/Cipla – Due to high base, both DRRD/CIPLA will see fall in earnings growth to 17%/46% respectively.   

Cipla will also face drop in EBITDA margin on one‐off supply opportunity of gNexium in Q1FY16 and enhanced R&D spend.

However, Phillip Capital also pointed out concern on recent ban imposed on fixed dose drug combinations (FDCs) and price ceiling on NELM‐based products – which have moderated domestic formulations growth to 7% in Q1. 

Yet, pharma is likely to outperform other sectors.